While there isn't much on the economic data calendar, several key
Federal Reserve officials will be speaking this
week.

On Tuesday, Fed Governor Jeremy Stein will speak about monetary
policy communication; on Wednesday, Fed Chair Janet Yellen will
testify to Congress about the economic outlook; on Thursday,
Philly
Fed President Charles Plosser will speak about monetary
policy communication and transparency; and on Friday,
Dallas
Fed President Richard Fisher will speak about the limits of
monetary policy.

Everyone will be listening for clues on where monetary policy
might be headed next.

Here's your Monday Scouting Report:

Top Stories

What 0.1%
Growth Means For Monetary Policy: U.S. GDP
growth slowed to just 0.1%
in Q1 from 2.6% in Q4. This was much weaker than the 1.2%
expected by economists. Tumbling exports, capital expenditures,
and government spending all contributed to the slowdown. Wall
Street offered their
fair share of spin.

Morgan Stanley's Matthew Hornbach was reminded of this quote
from a
March 6 WSJ interview with NY Fed president William Dudley:
"If the economy decided it was going to grow at 5% or
the economy decided it wasn’t going to grow at all,
those would be the kind of changes in the outlook that
I think would warrant changing the pace of taper... If
the data is significantly different than what we expect, and it
changes the outlook – so it can’t just be bad data, it’s got to
be bad data that changes the outlook in a material way – then
we could adjust the taper path."

Hornbach expects the Fed will probably have to revise its
projection for real GDP in 2014. However, he doesn't believe
any of this would have a "material" affect on the Fed's outlook
and thus force the Fed to tweak the taper. From Hornbach
(emphasis ours): "If the Fed lowers its projections at the June
FOMC meeting such that the central tendency range for 2014 real
GDP falls to between 2.3 to 2.4% representing a decline of 0.5
to 0.6% – then history suggests ... that the 2015 real GDP
projections will fall by 0.3-0.4% to a range between 2.6-2.9%
from the current 3.0 to 3.2%. Despite what may appear
to be large declines in projected growth rates, growth in both
years will remain above longer run potential. In
addition, the smaller decline in projected growth in 2015
relative to 2014 would signal the expectation that growth will
accelerate more quickly between 2014 and 2015 than what the Fed
projected before. Instead of growth moving from 2.9% in 2014 to
3.1% in 2015, the Fed would expect growth to move from 2.35% in
2014 to 2.75% in 2015. With FOMC participants
previously expecting that growth would revert to 2.75% in 2016
anyway, we do not think the Fed would consider such a downward
revision to real growth expectations material. As a result, we
do not think the Fed’s economic outlook will change materially
based on weak 1Q14 real GDP growth."

Economic Calendar

Markit Services PMI
(Mon): Economists estimate Markit's index fell to 54.5
in April from 55.3 in March. "With the exceptions of the
government shutdown last October and the weather-related
disruptions in February, the rate of economic growth signaled
by the flash services and manufacturing PMIs in April was the
weakest since May of last year,"
said Markit's Chris Williamson.

ISM Non-Manufacturing
Composite (Mon): Economists estimate ISM's services
index increased to 54.0 in April from 53.1 in March. "Early
readings on the service sector for April, including the
Richmond Fed survey and the flash reading of the Markit
services PMI, pulled back slightly for April, but remained in
positive territory," noted Wells Fargo's John Silvia.

Trade Balance
(Tues): Economists estimate the trade deficit tightened
to $40.0 billion in March from $42.3 billion in February. "The
trade deficit likely narrowed sharply in March, settling back
to the yearend range," said Citi's Peter D'Antonio. "The
February deficit widened out for two temporary reasons: a drop
in exports that may have been related to weather and a spike in
imports of services due to payments for the Olympics."

Fed Chair Yellen
Testifies (Wed): From Credit Suisse: "We expect her to
describe recent improvements in the economic data, in keeping
with the FOMC observation that growth has picked up. But
central to her message likely will be the need for continued
accommodation in order to promote further job creation, which
would be in line with her March 31 address in Chicago... Yellen
may also reprise an important theme from her April 16 speech
before the Economic Club of New York in which she described the
Fed’s reaction function in Taylor Rule-like terms,
re-establishing the notion that the FOMC will respond in a
systematic way to deviations from the baseline forecast of
inflation approaching 2% and continued progress toward full
employment."

Consumer Credit
(Wed): Economists estimate the consumer credit balances
increased by $15.5 billion in March. "As has been the case in
recent years, we expect this to be driven largely by the
nonrevolving component, though we do expect a modest boost from
revolving credit growth as well," said Barclays economists.

Initial Jobless
Claims (Thurs): Economists estimate jobless claims fell
to 325,000 from 344,000 a week ago. "Initial jobless claims
have trended higher in the past couple weeks," noted Nomura
economists. "We need to observe claims in coming weeks to
determine if this trend continues and if there has been any
deterioration in labor market performance."

Job Openings And
Labor Turnover Survey (Fri): According to the JOLTS
report, U.S. companies had 4.173 million job openings. "JOLTS
has garnered more attention lately as Fed Chair Yellen often
cites the survey when assessing the state of the labor market,"
noted Credit Suisse.

In a new research note, JP Morgan's Jan Loeys warns that the low
VIX is by no means an all-clear. From Loeys: "Most dangerous to
markets is that low volatility is not the same as low risk. It
can be, as fewer shocks depress volatility. But markets can also
move in tight trading ranges if the shocks hitting them neatly
offset each other. And that is probably what has happened this
year. The continued lack of a yield on cash remains a powerful
stimulant for financial assets. But economic activity data have
seriously disappointed so far this year. By our estimates, Q1
global growth is only coming in near 2%, well down from the 3% we
expected at the start of the year. We have kept our growth
projections for the rest of the year largely unchanged, balancing
off the possibility that Q1 weakness was just due to temporary
factors — suggesting upside from Q2 on — and the possibility that
something more fundamental is going wrong in the world economy."